The Ownership of the Mining Area - Assignment Example

PROSPECTUS STUDENT’S NAME: INSTITUTION: INSTRUCTOR’S NAME: DATE: QI. Two companies Windimurra Vanadium Limited Legacy Iron Ore Limited Windimurra Vanadium Limited is located in Australia. The company engages in activities of mining and exploring minerals. However its main commercial activity is mineral exploration and expanding the development of its mining site commercially. The world’s proved vanadium reserves are hosted by Windimurra Vanadium and therefore it possesses the ownership of the mining area. Legacy Iron Ore Limited is company that deals with exploration of minerals in the region of Western Australia. The company has its focus on iron ore development and gold and coal deposits. It aims at commercializing its activities by penetrating into the Australian lands where there are more minerals. Q2.Legal ownership Windimurra Vanadium limited is a company under a legal structure of corporation, it is a large company and therefore it is operated through transferability of shares. The company has a limited liability and a centralized management. The company issued a prospectus because of the existing financial status of the company, which was a result of fire outbreak in the company. The original owners of the company prefer a public company as an appropriate structure because it has projects that will help them in partnering with other international companies which will enable it to achieve its commercial expansion of activities (Richard, F & Michael, R. 2010). Legacy Iron Ore Limited is also a corporation company under the business legal structures. It has limited liability and a centralized management as well. Its shares are transferable and therefore the owner should have more shares. The company prefers a public company and therefore it has issued a prospectus to encourage more purchase of shares. The reason for adopting a public company is due to its upcoming projects that seek an opportunity to invest on Australian gold and coal minerals by distributing them to shareholders. Also the company is seeking to be granted an opportunity to operate with foreign markets (Damodaran, A. 1997). Q3. Issuers’ choices The two firms are not underwritten because they have highlighted their own securities without the help of other firms (Fontana, P. 2010). The initial Public Offering for Windimurra Vanadium has displayed the specific characteristics which are industry fragmentation and discovery of niche market. The company has other companies where it expects to grow and benefit the shareholders. Legacy Iron Ore Limited Company is undergoing transitory growth whereby the company expects to grow by selling its stock to the public company. It expects to commercialize its activities through inviting more stakeholders and hence venturing on growth of its resources. Also the company is engaging in industry fragmentation whereby it has joint venture with other small companies. Therefore the main purposes of making these choices, the issuers have their own motives of growth and expansion of their activities and therefore benefiting their shareholders. They also both aim at commercializing their activities and therefore the reason for going public on their business (Carter, R., & Manaster, S. 1990). Q4.Signalling mechanisms One of the signaling mechanisms used by the two firms is underpricing of the shares, from preview on the prospectus of each firm we find that they have lowered the price of their shares because they want to convince the market that they will be able to settle the costs underpricing (Allen, F., & Faulhaber, G. 1989). This is a signaling mechanism because these firms are of high quality. Another mechanism concerns retaining the ownership, both companies have retained their ownership as per the information on the prospectus. The purpose of retaining ownership is to inform the public that the shareholders wish to continue investing in the company. For the Windimurra Vanadium company, they have not issued their financial information but have guaranteed the interested shareholders that it will not affect the future performance of the company. The company has done this to convince the public that the past financial information cannot affect the performance of the company in the future. Legacy Iron Ore on the other hand has issued its financial information by providing a balance sheet; this is a mechanism that will signal the interested buyers on the situation of the firm. Other signaling mechanism used by both firms is the risk factors. They have issued the risk factors both specific and general factors that will enable the interested buyers to make wise decisions when venturing into the new business. The risk factors provide stumbling block that the firms have been through. Windimurra Company has issued its expenditure information and this also acts as a signal mechanism because it highlights the amount of money needed (Connelly et al, 2011). Q5. Small business The issuers do not fit the characteristics of small firms prior to listings. This is proved by the facts that the firms have limited liabilities which when compared to that of small firm, the limited liability as characteristic is absent and not effective. Another characteristic that distinguishes the issuer from a small business is the managerial aspect whereby the two firms have portrayed effective management since its operations are much more than those of small firms whereby they do not require depth management. There is separation of ownership from control in the two firms whereby they have employees who run and manage the business. The purpose of shareholders is to receive information on the progress activities and make necessary decisions. In small firms there is no separation of ownership from control because the business is controlled and managed by the owner (Maeda, M. 2011). Small business does not have to work on reputation of its business as long as it has its own loyal customers and suppliers. For the case of the issuers, they have to maintain their reputation by building the image of the company. This applies to the fact that they are big firms that are globally recognized and therefore they have to convince buyers from different regions. The firms therefore have a responsibility of shaping and maintaining the company’s image. Small business requires small capital to start and this explains why it is easy to form and maintain it. For the case of issuers they required large amounts of capital for their formation, therefore the use of shareholders contribution explains why the firms were able to accumulate enough capital. For small business, the profits belong to the owner, but for the case of issuers, the member with more shares will benefit from the profits therefore distinguishing it from small business (Berger, A. & Udell, G. 1998). Reference Allen, F., & Faulhaber, G. (1989) ‘Signalling by underpricing in the IPO market’ Journal of Financial Economics, 23(2), pp. 303-23 Berger, A. & Udell, G. (1998) ‘The economics of small business finance:  the roles of private equity and debt markets in the financial growth cycle’ Journal of Banking & Finance, 22, pp.613-673 Carter, R., & Manaster, S. (1990) ‘Initial public offerings and underwriter reputation’ Journal of Finance, 45(4), 1045-67 Connelly, B., Certo, T., Ireland, D. & Reutzel, C. (2011) ‘Signaling theory: a review and assessment’ Journal of Management, 37(1) pp. 39-67 Damodaran, A. (1997) Corporate Finance:  Theory and Practice, John Wiley & Sons Inc., New York Fontana PK. (2010). Choosing the right legal form of business . Atlantic Publishing. Maeda, M. (2011). The Encyclopedia of small Business Forms and Agreements. Atlantic Publishing Company. Richard, F & Michael, R. (2010). Business Structures. Thomson. Read More